While the Conservatives suffered the humiliation of losing to Ukip in Clacton, Essex (northeast of London) - where the Tory defector Douglas Carswell became Ukip's first MP - senior Labour figures say the party has been caught unawares, having focused on the cost of living crisis and the National Health Service, with immigration a lower priority.
One key figure said: "We have had no real response to Ukip, who are now our main opposition in large parts of the north.
"We just assumed Ukip was the Tories' problem.
"The worry is that it is a bushfire spreading everywhere."
In his first detailed response since Ukip's byelection surges, Miliband insists that while he will never seek to imitate Farage's party, Labour has to do more and comprehend why Ukip supporters feel so abandoned that they are turning to it in anger.
"We can only do so if we understand many of the people turning to Ukip because of disappointment with Conservative and [past] Labour governments," he says.
While he claims that his core message that the economic recovery is not benefiting most people has resonance, he accepts that "all this does not automatically translate into support for the Labour Party".
Making clear Labour will announce tough new immigration policies in the coming weeks, Miliband says that rules limiting access to benefits until migrants have contributed to the state will be based on the principles of "contribution, responsibility, fairness". As well as stronger border controls and laws to stop "exploitation that has undermined wages of local workers", Labour will commit to "reforms to ensure those who come here speak English and earn the right to any benefit entitlements".
Sources close to Miliband made clear that the announcements would go further than Labour's existing plans to extend the period EU migrants must be in the UK before claiming out-of-work benefits to six months, and to prevent benefits being sent back to families in other countries.
It is expected that Labour will impose language tests on migrants to ensure those applying for public sector jobs have a level of proficiency as a condition of being taken on.
Labour will take some comfort from the latest Opinium/Observer poll which shows that the party has a seven-point lead over the Tories. Labour is on 35 per cent, the Tories 28 per cent, and the Lib Dems 9 per cent. But Ukip remains strong on 17 per cent.
Labour Party spokeswoman for domestic affairs Yvette Cooper added her voice to those calling for Labour to do more to tackle Ukip.
"We should talk more about immigration and the things people are worried about," she said.
Mark Reckless, who defected from the Tories to Ukip, is their candidate in Rochester and Strood, north England.
The byelection is expected to be called next week for a date in November.
Fresh from their victory in the Essex seaside town and their close call in Greater Manchester, Farage and Carswell descended on Rochester in Kent yesterday with Reckless.
Farage said Ukip was "targeting everybody in this campaign", adding: "Let's make the people's army of Ukip march on Rochester and Strood."
Prime Minister David Cameron is under pressure from some Tory backbenchers to consider an electoral pact with Ukip to ensure a Conservative victory next May.
But Farage rejected the idea, saying Ukip was "not a splinter" of the Tories. And a source close to Cameron said: "We don't do pacts."
About Ukip
What does Ukip want?
It essentially wants Britain to leave the European Union and to restrict immigration severely.
How has Ukip become popular?
A party that was once dismissed by Prime Minister David Cameron as "fruitcakes, loonies and closet racists" has soared in the past two years amid increasing disenchant-ment with mainstream parties.
When did it first show its political muscle?
In the European elections in May, Ukip won the largest share of the vote, 27.5 per cent, two points ahead of Labour and 3 points ahead of the Conservatives.
What has happened now?
In UK byelections last weekend Ukip won its first elected MP with a record 44-point swing in Conservative-held Clacton and came within 2 points of winning a second, this time from Labour, in Heywood and Middleton.
Is it more of a threat to the Conservatives or Labour?
Both. Ukip won 60 per cent of the votes cast in Clacton and caused a Labour slump from a majority of nearly 6000 in 2010 to one of just 617 in Heywood and Middleton. Ukip's leader Nigel Farage now claims it could win enough seats to hold the balance of power if next May's general election produces no overall winner.
Who is most under pressure?
Labour leader Ed Miliband. His party is only narrowly ahead in most opinion polls. His personal popularity ratings lag well behind Cameron and Farage amid suggestions from experts his geeky persona fails to connect with voters.
- Independent, Independent, AFP
